Cost of Capital and Corporate Investment Decisions
This group assignment deals with Cost of Capital and Corporate Investment Decisions. Completing this assignment, you need to use financial media (such as Bloomberg online, Google Finance, Yahoo Finance, WSJ, etc.). Attach a printout (as an appendix at the end of your submission) including every piece of information you obtain from the financial media in this assignment. Background: Qantas (ASX: QAN) is currently working on a 10‐year upgrade plan with Airbus. The plan is trying to retire 5 existing aircraft and purchase 10 new aircraft in 2020.
The new plane’s purchase price is AUD 100 million, and the old planes were purchased at AUD 60 million 15 years ago. Both old and new planes can be used for 20 years. QAN is conducting a prime cost depreciation to zero over 20 years life. If you are disposing of the old planes now, the salvage value will be AUD 5 million.
The management team believes that at the end of the first year of the project they could earn pre-tax revenues of $150 million, $250 million the following year, $350 million in the third year, $250 million from the fourth to the ninth year, and $150 million for the last year. The average corporate tax rate paid by QAN is 26%.
Task: 1. Data Collection: Collect the following information for QAN from a legitimate financial media: beta, risk-free rate, cost of debt, and capital structure information (debt and equity structure). Describe your data collection process, and compare the statistics for QAN with its peers (5-10 peers) such as Virgin Australia and its industry average.
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